Turkey Announces Further Details and Exemptions for Currency Controls on Foreign Currency Contracts

Turkey has announced further details, exemptions and clarifications for recently introduced rules restricting foreign currency or foreign currency indexed payment obligations in contracts between parties residing in Turkey. These entered into force on 13 September 2018 by amending Decree Number 32 on Protection of Value of Turkish Currency (more).

Restricted Contract Types

The following contract types executed by and between parties residing in Turkey cannot have foreign currency or foreign currency indexed contract prices or other payment obligations:

– Real estate sales agreements for properties located in Turkey (including residential and workplace sales, as well as real estate located in free zones).

– Real estate rental agreements for property located in Turkey (including residential and workplace sales, as well as real estate located in free zones).

– Labor agreements (except for those which will be performed abroad).

– Service agreements including consultancy, brokerage, and transport agreements, except for the agreements relating to:

– A non-Turkish citizen.

– Exports, transit trade, export sales and deliveries and activities that result in earning of foreign exchange.

– Activities to be carried out abroad by persons residing in Turkey.

– Electronic communication services which either:

– Start abroad and end in Turkey, or

– Start in Turkey and end abroad.

– Work/construction agreements (excluding construction, repair and maintenance of ships defined in Law Number 491 Amending the Decree Law and the Turkish International Ship Registry Law Number 4490 on 16 December 1999).

– Sales or rental of vehicles and construction vehicles, excluding agreements made before 13 September 2018.

Exemptions from the Restrictions

The following contract types executed between parties residing in Turkey are not included in the scope of the foreign currency limitations. Thus, these contract types can be made in a foreign currency or be indexed to a foreign currency:

– Agreements executed by state institutions and organizations and the Turkish Armed Forces Foundation (except sale or rental of real estate).

– All agreements made by contractors of state-owned institutions, provided these relate to performance of a tender, agreement or international agreement awarded by the state based on a foreign currency or indexed to a foreign currency (except sale or rental of real estate or labor agreements with third parties).

– All agreements entered by banks for transactions carried out under the Law on the Regulation of Public Finance and Debt Management number 4749 dated 28 March 2002 carried out by the Ministry of Treasury and Finance.

– Persons authorized for ground handling services in airports within the scope of civil aviation legislation (including businesses and companies incorporated by the said institutions and their partners with direct or indirect ownership of at least 50%).

Notable Provisions

– Negotiable instruments issued within the scope of agreements within the scope of foreign currency restrictions are also prohibited from being issued in foreign currencies.

– The price of agreements within the scope of the foreign currency restrictions cannot be indexed to precious metals or commodities. The price of these are determined in international markets based on foreign currencies. Precious metals and commodities are considered as a “foreign currency indexed agreement”.

– Indirect currency indexing is prohibited.

– The following entities abroad will be regarded as “residing” in Turkey:

– Companies with at least 50% shareholding by persons residing in Turkey.

– Direct or indirectly held companies of persons residing in Turkey.

Determining the Turkish Lira Prices

– Foreign currency or foreign currency indexed prices for contracts which fall within the scope of the restrictions must be re-determined in Turkish Lira by their parties upon mutual agreement by 13 October 2018.

– If the parties fail to mutually agree, the foreign currency or foreign currency indexed prices will be re-determined as follows:

– The Turkish Lira equivalent of the foreign currency price will be determined based on the indicative effective selling rate announced by the Central Bank applicable on 2 January 2018.

– The Turkish Lira amount will increase on a monthly basis starting from 2 January 2018 until the redetermination date, based on the monthly change ratio in the consumer price index (TÜFE) determined by the Turkish Statistical Institute.

– For residential and workplace rental agreements entered before 13 September 2018:

– Foreign currency or foreign currency indexed prices must be determined in Turkish Lira in accordance with the above rules for a period of two years as of 13 September 2018.

– If the parties cannot mutually agree:

– The rent determined in accordance with the above will increase based on the monthly rate of change of the consumer price index (TÜFE) determined by the Turkey Statistical Institute as of the determination date and until the end of the rental year which the determination was made. The rental fee will apply for one year, starting from the end of the next rental year which the determination was made.

– The rental fee for the following rental year will be determined by increasing the rent of the previous year based on the monthly rate of change of the consumer price index (TÜFE). The new price will apply until the end of the foregoing two-year period.

– Provisions regarding re-determination will not apply for collected or defaulted receivables.

The Communiqué Amending the Communiqué regarding Decree Number 32 on The Protection of The Value of Turkish Currency was announced in Official Gazette number 30557 on 6 October 2018, entering into force on the same date. Please see this link for the full text (only available in Turkish).

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Turkey Increases Interest Rate Caps for Credit Card Transactions

Turkey has increased maximum interest rates for credit card transactions, allowing banks to charge higher interest rates. From 1 October 2018, the maximum contractual interest rate for credit card transactions in Turkish Lira increases from 2.02% to 2.25%, as well as for foreign currency credit card transactions from 1.62% to 1.80%. Similarly, the maximum default interest rate for Turkish Lira credit card transactions increases from 2.52% to 2.75%, as well as for foreign currency transactions from 2.12% to 2.30%.

The Amendment to the Communiqué Regarding Maximum Interest Rates Applied to Credit Card Transactions was published in Official Gazette number 30541 on 20 September 2018. Please see this link for the full text (only available in Turkish).

urkey has amended rules for the Central Bank to collect information and documents from firms, allowing it to monitor transactions which affect an entity’s foreign exchange position. Changes apply to the scope of qualifying entity’s, deadlines for submitting the information, as well as registration processes for the Systemic Risk Data System (“System”).

Notable amendments include:

– The scope of legal entities which must submit information if they meet certain thresholds for foreign currency cash loans and foreign currency indexed loans has been reduced. Accordingly, the requirement now applies to:

– Private legal entities, excluding banks and financial institutions.

– Metropolitan municipalities, municipalities and their affiliated enterprises and administrations.

– Metropolitan municipalities’ and municipalities’ economic enterprises in which they hold more than half of the capital.

– State economic enterprises.

– Higher education institutions.

– For the quarterly periods ending 31 March, 30 June and 30 September, information must be submitted by the end of the second month following the respective period (previously, a one-month deadline).

– Reporting deadlines are set for the first time in relation to firms which apply the special accounting period. Accordingly, these must submit the information by:

– The end of the second month following the end of quarterly interim periods

– The end of the third month following the annual accounting period.

– The System will also allow registration through the security steps specified in the System, in addition to electronic signatures.

– The Central Bank is now authorized to:

– Amend the System’s notification and audit periods

– Amend the support service organization

– Amend notification procedures

– Amend data form items to be audited

– Establish practices which are necessary due to specific circumstances regarding:

– Firms that apply special accounting period.

– Insolvent firms.

– Firms where management and audit have been transferred to the Savings Deposit Insurance Fund.

The Regulation Amending the Regulation on Procedures and Principles Regarding Monitoring of Transactions Affecting Foreign Exchange Position by the Central Bank of Turkey was announced in Official Gazette number 30540 on 19 September 2018, entering into force on the same date. Please see this link for the full text (only available in Turkish).

Turkey has reduced the financial and investment thresholds required for foreigners to acquire Turkish citizenship. The new thresholds apply from 19 September 2018. The changes apply to the necessary values of fixed capital investments, immovable property purchases, workforce employment, cash deposits, as well as government debt instruments, real estate investment funds and venture capital funds.

Accordingly, foreigners who meet the following conditions can now acquire Turkish citizenship:

– Making a fixed capital investment of at least US $500,000, or the equivalent value in foreign currency or Turkish Lira (previously US $2,000,000).

– Purchasing immovable property worth at least US $250,000, or the equivalent value in foreign currency or Turkish Lira (previously US $1,000,000). The property must have an annotation in title deed registry that it will not be sold for at least three years.

– Employing at least 50 employees (previously 100 employees).

– Depositing US $500,000 cash, or the equivalent value in foreign currency or Turkish Lira at banks operating in Turkey, provided the cash will not be withdrawn for three years (previously US $3,000,000).

– Purchasing Government debt instruments worth at least US $500,000, or the equivalent value in foreign currency or Turkish Lira, provided these will not be transferred for three years (previously US $3,000,000).

– Purchasing real estate investment funds or venture capital investment funds worth at least US $500,000, or the equivalent value in foreign currency or Turkish Lira, provided these will not be transferred for three years (previously US $1,500,000).

Cross exchange rates can now also be used along with effective exchange rates when calculating these monetary values.

Please see this link for the full text of the Regulation Amending the Regulation on the Implementation of the Law on Turkish Citizenship established by the Presidential Decree No. 106 and published Ministry in Official Gazette number 30540 on 19 September 2018 (only available in Turkish).

Turkey’s Capital Markets Board (“Board”) has announced new rules for Trade Repositories, including new obligations, activity principles, as well as new rules for membership, operation and audit.

The Regulation on Trade Repositories’ Operation, Practice and Audit Principles (“Regulation”) was published in Official Gazette number 30540 on 19 September 2018.

Notable rules introduced under the new regime include:

– To obtain an establishment licence, Trade Repositories must:

– Be incorporated as a joint-stock company.

– Have share certificates registered and issued in exchange of cash.

– Have fully paid capital worth at least the amount decided by the Board.

– Possess the qualities set forth under Article 44 of the Capital Markets Law numbered 6362 (“CML”).

– For founders and shareholders which hold a direct or indirect significant effect over the legal entity, these must possess the necessary qualifications determined under the CML.

– An open and transparent shareholding structure.

– Trade Repositories must:

– Register and electronically maintain the notified information about transactions in Turkey, as determined by the Board.

– Audit the consistency of notifications with its members’ transactions.

– Request rectifications or inform the Board in case of inconsistency.

– Secure the confidentiality of notifications.

– Publicly disclose data.

– Answer data requests.

– Develop data analysis tools.

– Perform other duties that the Board may impose.

– The Board has the right access all information maintained by Trade Repositories.

– The following entities have the right to partially access information maintained by Trade Repositories as is necessary for their statutory duties and obligations:

– Ministry of Finance and Treasury.

– Banking Regulation and Supervision Agency.

– Central Bank.

– Savings Deposit Insurance Fund.

– Investor Compensation Centre.

– Other public authorities approved by the Board.

– Transaction parties, the Central Registry Agency and other investment companies that offer reporting services are only allowed to access transactions which they are a party to, or those they have been notified about.

– Trade Repositories are subject to auditing with regards to their operations, if deemed necessary by the Board. The information systems of Trade Repositories are also subject to auditing, as per the Board’s related legislation. The financial audits will be executed by independent auditing firms chosen by the Board.

Please see this link for full text of the Regulation (only available in Turkish).

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Turkey Introduces Domestic Production Logo and New Rules for Price Tags

Turkey has introduced new rules for tags, tariffs and price lists for retail goods and services. From 3 October 2018 these must also include the effective date for sales and unit prices. The Ministry of Trade has also announced a new compulsory logo which must be included on locally manufactured goods.

The Regulation Amending the Regulation on Price Tags (“AmendmentRegulation”) was published in Official Gazette number 30539 on 18 September 2018. The Communiqué on Use of Domestic Production Logo on the Price Tags (“Communiqué”) was published in Official Gazette number 30556 on 5 October 2018.

Under Turkish law, tags, tariffs and price lists for retail goods and services must indicate:

– The place of production.

– Distinctive characteristics.

– Sale price, including any applicable taxes.

– Unit price.

According to the Amendment Regulation, from 3 October 2018 these must now also include:

– The effective date for sales and unit prices, to enable consumers to follow price changes.

– A specific logo if the product is locally manufactured. The logo aims to promote the use of domestic products. According to the Communique, the logo must be:

– Easily visible and readable.

– Used in a way that it is easily seen by the consumers

– Used in its original colours and ratio (below).

The Communiqué states that the following goods are considered as locally manufactured goods:

– Goods manufactured in Turkey by industrial enterprises, as defined in the Industrial Registration Law number 6948.

– Handcraft and domestic craft goods manufactured in Turkey.

– Goods obtained or manufactured completely in Turkey, as listed in Article 18 of Customs Law number 4458.

Please see this link for full text of the Amendment Regulation and this link for the full text of Communique (only available in Turkish).

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Turkish Court of Appeals: Arbitral Awards Based on Arbitration Agreements Entered before 1 October 2011 Cannot be Appealed to the Court of Appeals

The Civil Procedures Law number 6100 (“CPL”) entered into effect on 1 October 2011. Turkey’s Court of Appeals recently ruled that arbitral awards which are made based on arbitration agreements that the parties entered before the CPL came into effect cannot be appealed to the Court of Appeals, as was contemplated by the (now repealed) Civil Procedures Law number 1086 (“Former CPL”). Rather, the court ruled that these awards can only be subject to an annulment action under Article 439 of the CPL.

The General Assembly on Unification of Judgments for the Court of Appeals ruled that according to Turkish legal doctrine and the Court of Appeals’ practices, arbitration agreements are deemed to be procedural law agreements on the basis that they produce their effects directly within procedural law. In that context, arbitration agreements are subject to procedural law with regards to the results they present.

The court noted that the principle of immediate effect applies when determining the applicable law for an arbitration which was conducted within the scope of arbitration agreements and arbitral awards. The principle states that temporal jurisdiction must be considered, meaning that the most recent procedural rules, regulated by legislators based on recent circumstances, are more efficient in protecting the parties’ rights.

The CPL outlines legal remedies against arbitral awards, as well as private law rules of procedure. It entered into force on 1 October 2011, abolishing the Former CPL. The CPL contains no transitional provisions which imply arbitration-related provisions under the Former CPL should continue to apply.

Therefore, the appeal procedures determined in the Former CPL do not apply to arbitral awards rendered after 1 October 2011, even though the arbitration agreements which the awards are based on were executed before this date, while the Former CPL was in force.

Even if the parties to the arbitration agreement agree the Former CPL’s provisions should apply, this agreement will be void. The court stated that only annulment actions can be filed against arbitral awards, based on the reasons determined in Article 439 of the CPL.

The US Food and Drug Administration issued a new Biosimilars Action Plan in July 2018 (“Plan”). The Plan’s main goals are to promote innovation, access to medicine, competition, introduce key actions (including establishing a new Office of Therapeutic Biologics and Biosimilars), as well as develop and implement new review tools.

In 2013, 22% of the US $754 billion global pharmaceuticals market consisted of biologics. This percentage is expected to be 30% in 2020. In 2014, seven of the top ten most sold pharmaceuticals in the world was biologics. In 2020, patents are expected to expire for biologics worth US $80 billion (source).

The high values involved mean pharmaceutical companies and government regulators alike are very interested in biotechnological pharmaceuticals.

The Turkish Biotechnology Strategy and Action Plan was prepared in 2015. Since then, several steps have been taken, such as assembling the Biotechnology Working Group, plus supporting companies active in R&D activities and technology transfer.

The Scientific and Technological Research Council of Turkey supports several projects regarding biosimilars, with each project’s budget worth more than 20 million Turkish Liras.

Please see this link for the full text of the Plan (only available in English).